Investors pin hopes on Canada's EQ Bank

FE Team | Published: January 02, 2024 23:10:40

TORONTO, Jan 2 (Reuters): In a tough year for Canadian banks, shares in mid-sized lender EQB Inc jumped more than 50 per cent on solid earnings growth, making it the best-performing banking stock in 2023, with investors expecting more gains this year.
The Toronto-based digital bank has no physical branches, which has helped keep costs under check while many of the bigger institutions had to cut jobs as they grappled with an inflated cost base.
EQ Bank, Canada's seventh-largest bank, grew its adjusted net income last fiscal year by 11.2 per cent while the big banks recorded between 0.7 per cent growth and a 23 per cent fall in earnings.
EQ's non-interest expenses rose 15.5 per cent while at the top three banks they rose over 20 per cent. CIBC, National Bank of Canada and Scotiabank took steps such as layoffs to control costs.
Now shareholders are betting that EQ's attractive mortgage products and its C$495 million acquisition of Concentra Bank in 2022 will drive earnings.
"It's going to be more and more on the radar of investors because they are gaining market share, they are doing more marketing promoting that challenger bank mentality. ... I think it's going to attract more investment," said Maxime Robillard, an analyst at Montreal-based Van Berkom Global Asset Management, which is an EQ shareholder.
Among the big six lenders, CIBC and National Bank shares rose 16 per cent and 11 per cent respectively in 2023, making them the biggest gainers.
Despite the 53.7 per cent rally in EQ, the stock trades at a price-to-earning ratio of 8.07, compared with RBC's 12.78 and TD's 15.29, giving investors hope that the rally has legs.
To be sure, EQ is a minnow in Canada's concentrated banking market, where the top six lenders control over 90 per cent of the assets and its C$3.3 billion market value is less than the C$4.1 billion profit industry leader Royal Bank Canada (RY.TO) earned in its latest quarter.